India’s inflation slowed to the lowest level in a year, boosting the central bank’s scope to support growth by pausing its record interest-rate increases.
The benchmark wholesale-price index rose 9.11 percent in November from a year earlier, the commerce ministry said in a statement in New Delhi today, compared with a 9.73 percent jump in October. The median estimate of 26 economists in a Bloomberg News survey was for a 9.02 percent gain.
Asian policy makers from China to Indonesia have either cut borrowing costs or kept them on hold to shield their economies as Europe’s debt crisis threatens to trigger a global slump. The Reserve Bank of India may leave rates unchanged this week after industrial production shrank and as the government struggles to ease foreign investment rules to spur expansion.
“Today’s inflation print makes the RBI’s case even stronger to maintain status quo on rates,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. “Weakening growth will find space in the policy statement, but they are unlikely to completely remove inflation from their radar.”
Sahay expects the Reserve Bank to keep its repurchase rate at 8.5 percent in the Dec. 16 policy meeting. The central bank, which says its objective is to slow inflation to 3 percent, expects price gains to ease to 7 percent by March 31.
Bonds, Rupee
The yield on the 8.79 percent government bonds due November 2021, which declined 27 basis points this month, rose seven basis points, or 0.07 percentage point, to 8.48 percent as of 12:50 p.m. in Mumbai. The rupee weakened 0.7 percent to 53.60 per dollar. The BSE India Sensitive Index (SENSEX) climbed 0.4 percent after losing about a fifth of its value in 2011.
The stock index had its biggest three-day drop since July 2009 after the government on Dec. 7 put on hold a cabinet decision to allow overseas retailers, including Wal-Mart Stores Inc., to open supermarkets. The move followed protests by the opposition and allies.
The rupee’s slump of about 16 percent this year, Asia’s worst performance, adds to the cost of imported goods and is keeping India’s inflation higher than in the so-called BRIC nations.
Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
Reserve Bank Governor Duvvuri Subbarao has raised the repurchase rate by 375 basis points in 13 moves since the start of 2010 to tame prices. The round of increases is the fastest since the central bank was established in 1935, Bloomberg data show.
‘Relatively Low’
The central bank said on Oct. 25 that its monetary tightening will help curb inflation and that the likelihood of a rate action in the December policy meeting is “relatively low.”
India’s food inflation moderated to 6.6 percent in the week ended Nov. 26 from a year earlier, the lowest reading in more than three years.
The Reserve Bank expects India’s economy to expand 7.6 percent in the year ending March 31, lower than the 8 percent it estimated earlier.
Consumer demand has begun to wane as a result of higher borrowing costs.
Output at factories, utilities and mines fell 5.1 percent in October from a year earlier, India’s statistics office said this week. The decline is the first since the 1.8 percent drop in June 2009.
Car Sales
The Society of Indian Automobile Manufacturers may cut its annual domestic passenger-car sales target as higher rates and fuel prices sap demand for Maruti Suzuki India Ltd. (MSIL) and Honda Motor Co. vehicles, Sugato Sen, a senior director for the group, said last week.
“The RBI will act first to protect growth because one doesn’t know when the government would react,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the Indian unit ofStandard & Poor’s. He expects the central bank to start cutting rates by March 31.
Prime Minister Manmohan Singh, halfway through his second term, is under pressure to revive a legislative agenda derailed by corruption allegations in the award of telephone licenses. His government faces at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state.
India’s decision to suspend the move to allow oveNEW DELHI -- India's inflation eased in November but remained above 9% for the 12th consecutive month, complicating policy options for a central bank whose series of interest-rate increases over the past 21 months have strangled economic growth.
The wholesale price index rose 9.11% in November from a year earlier, compared with October's 9.73% increase, government data showed Wednesday. The reading slightly overshot the median estimate for a 9.04% rise in a poll of 15 economists.
Bond prices extended losses on the higher-than-expected reading that will keep alive expectations that the Reserve Bank of India will have to persist with a tight monetary stance for some more time. Local shares also turned lower, dragging the rupee further down.
The benchmark 8.79% 2021 bond fell to 102.20 rupees from 102.46 rupees before. The Bombay Stock Exchange's benchmark Sensitive Index slipped 0.6% to its intraday low of 15,912.91, compared with its 0.6% gain before the data release. The rupee was trading at 53.68 rupees, close to its all-time low of 53.75 rupees hit earlier in the session.
High prices in Asia's third-largest economy aren't showing any signs of drastic easing despite aggressive monetary tightening, raising worries that the RBI won't be in a hurry to give up its anti-inflationary stance even though the economy is slowing. Data released Monday showed industrial output in October shrank 5.1% from a year earlier, the first contraction in more than two years.
Finance Minister Pranab Mukherjee said Wednesday Indian policymakers must now shift their focus from taming inflation to reviving economic growth, as the sharp industrial slowdown was due partly to domestic anti-inflation policies as well as the economic crisis in Europe.
The RBI has raised its lending rate 13 times since March 2010 to control inflation, but increasing prices of food and manufactured products have prevented inflationary pressures from easing.
The latest inflation reading dilutes market expectations that the RBI would advance a rate cut to early next year to stimulate the economy.
"The central bank may have exhausted most of its space to raise rates further, but is unlikely to change the anti-inflation stance," said Rupa Rege Nitsure, chief economist with Bank of Baroda.
M. Govinda Rao, a member of the Prime Minister's Economic Advisory Council, expects the RBI to pause on rate increases at its policy review Friday as the inflation rate is trending down.
Write to Abhrajit Gangopadhyay and Anant Vijay Kala at anant.kala@dowjones.comrseas companies into multibrand retail puts off an influx of foreign investment from companies including Bentonville, Arkansas-based Wal-Mart and Cheshunt, England-based Tesco Plc.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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